Mitt's Medicare Time Bomb

When Mitt Romney signs legislation fully repealing Obamacare, he'll be setting a time bomb. Not for the uninsured, who will simply continue to go without health care coverage, but for the very Medicare recipients whose benefits Romney's promising to leave untouched.

By overturning the Affordable Care Act, Romney will restore major spending commitments to the program -- billions of dollars worth of higher reimbursements for private insurance companies and hospitals that Obama cut out of the program.

Because Medicare is built upon a trust fund accounting system, that commitment -- $700 billion over the next 10 years -- will deplete the program's existing finances and hasten its insolvency by years. In 2016, under Romney's plan, Medicare will be out of money, and he and Congress will likely have to choose between finding other savings in the program, raising Medicare taxes, abruptly slashing benefits for current seniors, or a combination thereof.

Avik Roy -- an outside health care adviser to the Romney campaign -- says Romney's best move would be a fifth option: to cut spending elsewhere in the budget, and use the savings to finance Medicare.

"I think the Tom Coburn document is a great place to look for offsets," Roy said in a Tuesday telephone interview, referring to the Oklahoma senator's plan to reduce deficits by $9 trillion. "There is a pretty large menu in there. ... The GAO came out with a report where they found $100 billion in savings from redundant and duplicative programs."

Romney separately plans to turn Medicare into a voucher program for people under 55. But because the Medicare eligibility age is 65, that program won't be launched for 10 years after Romney enacts the reforms. But even if you assume the new, privatized program will be fiscally viable, Romney will have to do something to prevent the existing program from going bankrupt in the interim. And he has foreclosed on the option of doing this via direct benefit cuts.

"The campaign has been very consistent, and I confirmed this today, that they will not change the program for current beneficiaries or anyone over the age of 55," Roy said. "That includes means testing and [raising the] retirement age."

So what can they do?

"If we're talking about protecting the hospital insurance trust fund ... you have to do one or both of two things," says Paul Van de Water, a Medicare expert at the nonpartisan but liberal leaning Center on Budget and Policy Priorities. "Either reduce hospital insurance spending, or increase revenues that are explicitly dedicated to the hospital insurance trust fund, or a bit of both."

Van de Water called Roy's idea -- cut other programs to finance Medicare -- unprecedented: "Devoting general revenues to hospital insurance would be a major change."

If Romney failed to shore up the trust fund, and it ran out of money, the law holds that Medicare spending drop and be held at the same level at which revenues are flowing into the system, Van de Water says, cautioning that this is uncharted territory. That would constitute a major, and growing, cut most likely to providers first, but ultimately to current beneficiaries.

The Romney campaign hasn't grappled with these implications, and has instead repeatedly attacked Obama for cutting the spending they've pledged to remand. But they add a layer of incredibility to Romney's already dubious pledge not to cut benefits for current seniors.

By repealing Obamacare, Romney will by definition be removing existing Medicare benefits -- prescription drug rebates, preventive and wellness coverage -- that the Affordable Care Act created. But even if you ignore that contradiction -- and even if you assume Romney avoids the trust fund solvency problem -- Romney's pledge will become more and more untenable over time.

As Brookings Institution health care expert Henry Aaron writes, "The premium for those who stay in traditional Medicare under the Ryan plan would be calculated as under current law, but the average cost of serving those who remain in traditional Medicare would go up as private insurance companies market selectively to those with relatively low anticipated costs. The average cost of those who remain in traditional Medicare would therefore increase. As a result of this gap, the financing for traditional Medicare would become progressively less adequate, throwing into doubt the very survival of the program."

This is what Newt Gingrich famously wished for in 1996 when he hoped a similar GOP plan would cause Medicare to slowly "wither on the vine." If the trust fund runs out of money in Romney's first term, he'd be ripping the bud directly off stem.

About The Author

Brian Beutler is TPM's senior congressional reporter. Since 2009, he's led coverage of health care reform, Wall Street reform, taxes, the GOP budget, the government shutdown fight and the debt limit fight. He can be reached at brian@talkingpointsmemo.com